I don't run Debian (yet), but wrt /bin/su being broken (and maybe some of the other problems you mention), on an earlier version of the Plug, someone had left the SUID bit unset on the /bin/su command, along with several others. Perhaps this is the case on the Debian load, too?

So you can login as root via ssh using a password. You run adduser and it creates a home directory for your user. Change the password for the user, try to login as this user with ssh. Add a public key, try login with the public key. Check file permissions of the public key, check logfiles of ssh, run ssh client in verbose mode, run sshd not-detached in verbose mode.

for your su problem. what are you want doing? what is happening? what do you expect to happen?

I don't think the problem is an SSH problem although it manifested as one since I created a user with an associated authorized_keys file but could not get secure SSH access. Delving deeper I think the problem is with the kernel and I have made some comments on the 2.6.32.9 Kernel forum entry.

For now I am going back to an old kernel until this bug is fixed. Maybe somebody could confirm that they are getting similar problems. Surprising this has not been spotted by others ?!

VERSION 2.6.32.9Cannot SU between accountsCan serial console login ONLY as rootCan SSH login only as root with a passwordCannot SSH login as any other user either by password or with PPK authentication

Although not possible to SU between accounts, you can login as root and then "su" to a user. But after that you cannot "su root" or "su" to any other user. su to another user, of course, does not require a passwd, so maybe the problem is more to do with passwords.